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Tuesday, September 27, 2022

As the economy continues to slow, large technology companies are proving to be resilient

BusinessAs the economy continues to slow, large technology companies are proving to be resilient

Even the wealthiest corporations in the IT sector aren’t immune to economic downturns. Anxieties about inflation and a weakening economy caused investors to penalise the top internet firms early this year, wiping off $2 trillion in market value.

Microsoft, Alphabet, Amazon, and Apple generated sales and earnings this week that proved these corporations had the power and variety to defy the economic difficulties that are affecting smaller companies.

It was clear that Microsoft and Amazon’s profitable cloud operations were growing even as the economy began to decline. A recent study by Google, a subsidiary of Alphabet, shows that travel agencies and shops continue to value search-based advertising. Increasing sales of applications and subscription services helped Apple mask a decline in its hardware business.

According to Dave Harden, chief investment officer at Summit Global, a business near Salt Lake City with roughly $2 billion under investment that includes Apple as one of its assets, this was a hint that technology may have already found a bottom and is starting to return.

Mr. Harden said, “These guys are still delivering.” “They’re doing the right thing and navigating through a hard patch,” said one analyst.

Even while Alphabet and Microsoft missed Wall Street’s estimates, their better-than-expected earnings boosted stock prices and gave the market a boost.

Customers’ shifting buying patterns and supply chain interruptions aren’t a challenge that only big organisations can handle. Bigger corporations like Facebook and Google aren’t as susceptible as smaller ones like Twitter and Snap, which owns Snapchat.

“Challenges” and “uncertainty” were used often by company CEOs in discussions with analysts to warn investors about the months to come. Alphabet has slowed its recruiting and taken other steps due to economic concerns, but it has not announced that it would begin to make layoffs.

Sundar Pichai, Alphabet’s top executive, said the business will “be more disciplined as we move ahead” in the face of a weakening economy. While in the midst of a development phase, it may be difficult to take the time to make all the necessary modifications, and times like these allow us to do so.

Microsoft predicted double-digit revenue growth for the next year, while Amazon predicted sales growth of at least 13% in the current quarter, which many investors read as a sign of the industry’s confidence.

Microsoft CEO Satya Nadella said that the firm will spend over the course of the year in order to gain market share and expand its companies, while Amazon CFO Brian Olsavsky stated that the company would have more products in stock and improve the speed of delivery.

The head of Ensemble Capital, a San Francisco-based investment business with $1.3 billion under management, said, “That’s not a recession projection.” It’s apparent that if we escape a severe recession, the growth of many of these enterprises will begin to pick up again.”

However, despite the lack of guidance provided by Apple and Alphabet, the companies bought back a substantial amount of stock. Both Apple and Alphabet’s acquisitions of $21.7 billion and $15.2 billion demonstrate their optimism that their businesses will continue to develop in the years to come.

Since its initial public offering in 2004, Meta has been an exception to the rule, announcing its first fall in quarterly sales since Facebook went public a decade ago. Since it has been losing users and advertisers due to growing TikTok competition, Apple’s privacy improvements on the iPhone have also been a contributing factor.

GroupM, a market research group, predicts that the advertising industry will expand 8.4 percent this year and 6.4 percent in 2023. As GroupM head of business intelligence Brian Wieser put it, it was “implausible to keep increasing” after Facebook’s revenue surge last year, when quarterly sales rose by 56%.

The e-commerce sector has faced similar difficulties. Amazon announced a massive expansion plan after a spike in online orders during the epidemic was seen as evidence of a shift in consumer shopping habits. In the most recent quarter, the number of things it sold grew by only 1%, therefore it has opted to postpone or cancel at least 35 warehouse openings.

Shopify, Amazon’s smaller e-commerce competitor, has announced that it would reduce 10% of its workforce.

As a result of its dependence on Chinese manufacturers, Apple faced its greatest challenge. Due to manufacturing closures in Shanghai, where iPads and Macs are manufactured, Apple predicted that it would lose $4 billion in sales in April. Apple’s sales of iPhones rose 3% in the time, and it also established a quarterly record for the number of customers who switched their Android phones for iPhones.

CEO Tim Cook cited a “combination of factors,” including supply bottlenecks, a strong currency that raised the price of Apple products internationally, and a sluggish global economy.

“When you think about how many hurdles we had in the quarter, we feel extremely happy about the increase that we put up,” Mr. Cook said. He went on to say that even if the economy were to slump, the corporation would continue to invest, but that it would do it “deliberately” in light of environmental concerns.

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